Skip to main content

How to differentiate between deed of absolute transfer and mortgage by conditional sale

In Bhimrao Ramchandra Khalate (deceased) Through Lrs vs Nana Dinkar Yadav, brief facts leading rise to the present appeal are that the plaintiff was the owner of 20 gunthas of agricultural land (For short, the suit land) situated in Village Khunte. The plaintiff was in need of money so he borrowed Rs.3,000/- from defendant No. 1 on 22.2.1969 by executing a document titled conditional sale deed as a security for the loan amount. The plaintiff requested defendant No. 1 to reconvey the suit land by accepting the loan amount of Rs.3,000/- but defendant No. 1 refused to do so. On 25.2.1989, defendant No. 1 transferred the suit land in favour of his brother (defendant No. 2). The plaintiff filed a suit against the defendants on 5.4.1989 under the Transfer of Property Act, 1882 for redemption of mortgaged property and possession. The claim of the plaintiff is that the transaction dated 22.2.1969 was in the nature of mortgage even though it was titled as the conditional sale.

The entire dispute revolves around whether the document dated 22.2.1969 is a document of conditional sale or a mortgage?

Finding favour with the plaintiff, the Supreme Court observed that in Pandit Chunchun Jha v. Sheikh Ebadat Ali & Anr. AIR 1954 SC 345, was faced with similar question as to whether a given transaction based on a document is a mortgage by conditional sale or a sale outright with a condition of repurchase. The court had then observed that the document had no clause for retransfer and instead says (clause 6) that if the executants pay the money within two years, the property shall come in exclusive possession and occupation with the transferors. The document had no clause for retransfer and therefore held that the next step is to see whether the document is covered by Section 58(c) of the Transfer of Property Act, for, if it is not, then it cannot be a mortgage by conditional sale. The first point there is to see whether there is an ostensible sale. That means a transaction which takes the outward form of a sale, for the essence of a mortgage by conditional sale is that though in substance it is a mortgage it is couched in the form of a sale with certain conditions attached. The executants clearly purported to sell the property in clause (5) because they say so, therefore, if the transaction is not in substance a mortgage, it is unquestionably a sale: an actual sale and not merely an ostensible one. But if it is a mortgage, then the condition about an ostensible sale is fulfilled. 13. We next turn to the Conditions. The ones relevant to the present purpose are contained in clauses (6) and (7). Both are ambiguous, but we have already said that on a fair construction clause (6) means that if the money is paid within the two years then the possession will revert to the executants with the result that the title which is already in them will continue to reside there. The necessary consequence of that is that the ostensible sale becomes void. Similarly, clause (7), though clumsily worded, can only mean that if the money is not paid, then the sale shall become absolute. Those are not the actual words used but, in our opinion, that is a fair construction of their meaning when the document is read as a whole. If that is what they mean, as we hold they do, then the matter falls squarely within the ambit of Section 58(c).

In P.L. Bapuswami v. N. Pattay Gounder AIR 1966 SC 902, the Supreme Court held that the definition of a mortgage by conditional sale postulates the creation by the transfer of a relation of mortgagor and mortgagee, the price being charged on the property conveyed. In a sale coupled with an agreement to reconvey there is no relation of debtor and creditor nor is the price charged upon the property conveyed, but the sale is subject to an obligation to retransfer property within the period specified. The distinction between the two transactions is the relationship of debtor and creditor and the transfer being a security for the debt. The form in which the deed is clothed is not decisive. The question in each case is one of determination of the real character of the transaction to be ascertained from the provisions of the  document viewed, in the light of surrounding circumstances. If the language is plain and unambiguous it must in the light of the evidence of surrounding circumstances be given its true legal effect. If there is ambiguity in the language employed, the intention may be ascertained from the contents of the deed with such extrinsic evidence as may by law be permitted to be adduced to show in what manner the language of the deed was related to existing facts.

In view of the judgments mentioned above, the intention of the parties has to be seen when the document is executed. It is not in dispute that the condition of retransfer is a part of the same document (Ex. 68). Such is the condition inserted by an amendment in the year 1929 expressed by the proviso of Section 58(c) of the Act. As held in Pandit Chunchun Jha, a transaction which takes the outward form of a sale but in essence the documents are of a mortgage, though it is couched in the form of a sale. This Court held that it is impossible to compare one case with another. Each case must be decided on its own facts and circumstances. The document has to read as a whole and if any word is ambiguous, then to find out the intention of the parties when such document was executed.

Therefore, a reading of the document would show that the document was executed for the reason that the plaintiff has borrowed a sum of Rs.3,000/- for his household expenses and the defendant is bound to retransfer the land if the amount is paid within one year. The advance of loan and return thereof are part of the same document which creates a relationship of debtor and creditor. Thus, it would be covered by proviso in Section 58(c) of the Act.

Defendants has also referred to the fact that the suit for redemption was filed after twenty years of the document being executed and, in the meantime, defendants have made improvements over the land. Thus, the plaintiff would not be entitled to seek redemption. 

The Supreme Court also held that Section 63 of the Act contemplates that any accession by the mortgagee, during the continuance of the mortgage, the mortgagor shall on redemption be entitled to such accession in the absence of a contract to the contrary. Under Section 63(a) of the Act, the liability of mortgagor to pay for improvement will arise if the mortgagee had to incur the costs to preserve the property from destruction or deterioration or was necessary to prevent the security from becoming insufficient or being made in compliance with the lawful order of any public servant or public authority. None of the eventualities arose in the present case compelling the mortgagor to pay for the improvements if any carried out by the mortgagee. A mortgagee spends such money as is necessary for the preservation of the mortgaged property for destruction, forfeiture or sale; for supporting the mortgagors title to the property; for making his own title thereto good against the mortgagor; and when the mortgaged property is a renewable lease-hold, for the renewal of the lease, such expenditure incurred by the mortgagee can be added to the cost of improvements in the principal amount due. However, in the absence of any positive evidence of any improvement and the cost incurred, the defendants are not entitled to recover anything more than the mortgage amount. Since the possession was given to the mortgagee, he has enjoyed usufruct from the mortgage property which compensates not only of the user of the land but also improvements made by him. The improvements were to enjoy the usufruct of the property mortgaged.


Comments

Most viewed this month

Appellate authorities under Special Statutes cannot be asked to condone delay

Madras High Court in R.Gowrishankar vs. The Commissioner of Service Tax has held that Appellate authorities cannot be asked to condone the delay, beyond the extended period of limitation A Division Bench comprising of Justices S. Manikumar and D. Krishnakumar, made this observation while considering an appeal filed against Single Bench order declining to set aside the order made in the condone delay petition filed by the petitioner to condone 223 days in filing the appeal before the Commissioner of Service Tax (Appeals). Article referred: http://www.livelaw.in/appellate-authorities-special-statutes-cannot-asked-condone-delay-beyond-extended-period-limitation-madras-hc/

'Seize assets to pay damages to accident victim'

Her story might be an inspiration for the physically challenged but justice has remained elusive for her. In 2008, a bus accident left research engineer S Thenmozhi, 30, paraplegic. In April 2013, the motor accident claims tribunal directed the Tamil Nadu State Transport Corporation (TNSTC) to provide her a compensation of 57.9 lakh. However, TNSTC refused to budge and on Tuesday a city court ordered attaching of movable assets of the transport corporation. Thenmozhi was employed in C-DOT, a telecom technology development centre in Bangalore. On July 21, 2008, she was coming to Chennai in a private bus. Around 2am, the bus had a flat tyre and the driver parked it on the left side of the road near Pallikonda in Vellore district on the Bangalore-Chennai highway. While the tyre was being changed, a TNSTC bus of Dharmapuri division hit the stationary bus. The rear part of the bus was smashed and passengers were injured. Thenmozhi who had a seat at the back of the bus suffered...

Mumbai ITAT rules income of offshore discretionary trust is subject to tax in India

The Mumbai Income Tax Appellate Tribunal (ITAT) has recently determined the following issue in the affirmative in the case of Manoj Dhupelia: Should the income of an offshore discretionary trust be subject to tax in India, if no distributions have been made to beneficiaries in India? The question arose from appeals filed by individual beneficiaries in relation to a Lichtenstein-based trust, the Ambrunova Trust and Merlyn Management SA (the Trust) with the ITAT. It is important to note that the individuals in this case were amongst those first identified by the Government of India (GOI) as holding undeclared bank accounts in Lichtenstein. The ITAT ruling raises the following issues: Taxation of Trust Corpus: ITAT classified the corpus of the trust as "undisclosed income" and declared it taxable in the hands of the beneficiaries. Taxation of Undistributed Income: ITAT refused to draw a distinction between the corpus and undistributed income from the trust and declared i...